09/16/2026
Putting 20% down isn’t wrong, but it isn’t automatically the best use of your money.
Consider this example:
You purchase a dated home for $500,000.
Putting 20% down means investing $100,000 upfront. You avoid PMI, borrow less and have a lower monthly mortgage payment, but you still own the same dated home.
Another option may be putting 5% down, paying PMI temporarily and using the $75,000 difference for strategic renovations.
Your numbers could look like this:
Purchase price: $500,000
5% down payment: $25,000
Starting mortgage: $475,000
Renovations: $75,000
Purchase and renovation basis: $575,000 before closing, financing and carrying costs
If those improvements increase the appraised value to $600,000, the $475,000 mortgage would represent approximately 79% of the home’s new value.
With an eligible conventional loan, qualifying improvements and an acceptable payment history, you may be able to request early PMI removal.
This is called forced appreciation.
You used renovations to potentially create equity while making the home more modern and enjoyable. If comparable renovated homes are selling closer to $650,000, you may also have created the home you wanted without paying the full turnkey price.
But there is a tradeoff.
Borrowing the additional $75,000 could add roughly $450 to $500 to the monthly principal and interest payment, depending on the rate, plus temporary PMI. Removing PMI would eliminate the PMI portion, but not the payment associated with the larger mortgage.
The real comparison is:
Put 20% down for a lower monthly payment and no PMI, or put 5% down, accept a higher payment and temporary PMI, and preserve cash to renovate, potentially create equity and build a home that may have cost significantly more to purchase already updated.
The strategy only works when the purchase price, renovation budget and renovated comparable sales support it.
Follow for more New Jersey real estate tips, and call or text 201-862-7186 if you’re considering buying a home.
Daniel Mendez | NJ Real Estate Broker
📧 | [email protected]
📱 | 201-862-7186
